Dear Readers,
We have seen nifty moving from 4600 to 5200 in just 3 weeks, a rally of almost 600 points. This rally was a surprise for many as well as me not because if sudden upside but because there was not even a minor profit booking in between. Absence of profit booking was mainly due to the fact that, we have seen 3 major gap-ups of almost 300pts in total and small-small gap-ups or sharp up-move before market closing consists of approx 200pts, so out of 600pts, there was 500pts rise which has not allowed traders (sitting on the sideline waiting to get in) to ride the upside. Gap-up move near the resistance levels are also done in order to minimize the selling pressure from locked in traders.
Nifty 5200-5400 range: This is the trading zone where we will see following activities…
1. Strong traders who are stuck on the short side of the market will finally close their position. Weak hands on the short side are already out due to sharp recovery.
2. Trapped traders on the long side (those who got trapped during the fall of Nov’11) who are now selling mostly at cost to cost will continue to sell which will be absorbed by the fresh new traders coming in the market.
3. Nifty has broken resistance of 5100 on upside with high volume on the day of RBI policy meet and this up move was supported on the very next day of expiry with high volume.
4. We are most likely to see nifty levels of 5360-5400 during next week. To be very frank, nifty has not given any sign of weakness so far and the sharp recovery has surprised everyone including myself.
5. One must be cautioned trading between 5200 - 5400 levels because smart money is slowly exiting which can be seen by high volume narrow bar. Most likely we will see a trend reversal near nifty 5400 but it will be confirmed only once we reach there.
6. It is advisable to trade with light position on the long side and avoid any short at this point of time. Once the market will indicate weakness, I will let all my readers know about that.
7. Market will frequently rest and go sideways after any high volume up-day (seen on the day of RBI Policy meet) because selling has to be disappear before any up move can take place.
Short term trend (1 week)….
Outlook for nifty is bullish for next few days unless we see a sign of weakness on the daily chart. Although the current rally looks tired now but we can still see nifty moving close to 5360-5400 before any meaningful correction or trend reversal. Today we have seen a small gap-up opening followed by +ve day and closing 40pts high which is clearly saying that upside will continue for some more time.
Medium term trend (3-6 months)…
There is no doubt that the current rally is a bear market rally and it is designed in order to suck/absorb all the investors who were holding cash and waiting from last 1 year for the market bottom to invest, they will get trapped at the higher levels. You can observe that there is good volume see in the cash market during last few days. This liquidity driven rally will try to attract retail investors. Once most of the market participants are sucked into the market we will see bottom formation at lower levels.
God bless you!
Regards,
Prof. Sameer Jain [Student of Market]
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